Update on Home Prices and what to expect in the housing market if you are still wanting to buy a home this year.
The recent reports from CoreLogic, Black Knight, and Zillow confirm the continued rise in home prices in April 2023 due to low supply and high demand. According to CoreLogic’s U.S. Home Price Insights, prices increased by 1.2% in April 2023 on a month-over-month basis, Black Knight’s Mortgage Monitor data shows a 0.5% increase, and Zillow reports an astounding 1.4% jump.
These average numbers annualized, if trends continue, mean that the year 2023 could see almost 12% appreciation. While unlikely, these are significantly high numbers, especially considering that a lot of people are not buying homes because they don’t want to give up their low-interest rate, resulting in lower demand than expected.
Price strengthening has erased over 60% of the declines seen late last year at the national level, and at the current rate of growth, this would fully erase those corrections by mid-2023, according to Black Knight. The chart below from MBS Highway indicates that the housing market reached its trough at the beginning of 2023, and appreciation will continue at a sustained level throughout the year.
CoreLogic predicts that another 0.9% increase in prices will occur in May 2023, and the MBS Highway team anticipate roughly 5% total appreciation in 2023. If these trends continue, it seems the predictions will come true.
Home Inventory is Still Historically Low
Despite the increase in prices, the shortage of inventory is still an issue. According to Black Knight’s report, inventory has declined in 95% of the major U.S. housing markets since the start of 2023, and sellers are listing fewer homes than last year while buyers compete over the few affordable homes left for sale. Although inventory has increased since last year, it is still significantly lower than pre-pandemic levels.
When Will Affordability Improve?
Low affordability remains a significant hindrance as property owners are hesitant to sell and give up their low mortgage rates, resulting in the low inventory. However, rates will come down eventually, and we still anticipate they will. Rates did spike in recent weeks amid the U.S. debt ceiling standoff but have started to trend back down since a deal was made. And if the Federal Reserve follows through with their recent comments that they may ‘skip’ another rate hike this month, we could see them come down even more.
Eventually, all this economic turmoil could likely result in a recession, despite the Fed’s best efforts. Europe appears to officially be in a recession, and U.S. jobless claims recently hit a 20-month high suggesting that the labor market is softening as interest rate hikes stifle business growth. Historically, mortgage rates increase in the months leading up to a recession, but they always fall when a recession sets in. If rates do fall, there will be a surge of buyers looking for homes, making it more challenging for buyers to meet all their needs and negotiate prices and other concessions.
Should I Wait to Buy, or Start the Process Now?
To act in your interest, we recommend that you start the process now and take advantage of the low competition if you can afford it. The value of houses are continuously increasing, and you will start benefiting from their appreciation right away. And, you will always have the opportunity to refinance and lower your payment when rates drop.
Here is an article for more information on Refinancing your mortgage: How Does Refinancing Work, A Comprehensive Guide
Create an Equity Transition Plan
If you worry about being able to afford a new mortgage payment in this market, we at Heritage Home Loans recommend creating an Equity Transition Plan with a Mortgage Advisor.
The reason most homeowners feel stuck in their current home is not because of their low-interest rates. They forget to consider their global household debt payment and don’t create a plan to use their current home equity wisely and effectively. Misconceptions could lead to the understanding that when selling your home and buying a new one, ALL your existing equity should be used as the down payment so your new mortgage can be as low as possible.
But what if, instead of making a large down payment, you used some of your equity to eliminate all your other debt (car loans, credit cards, etc.) and reduce your GLOBAL household debt payment? Creating an equity transition plan and finding ways to lower your global household debt payment is crucial in this market.
If you have significant home equity, putting less money down on your new home and instead paying off your other debt can make buying a home much more affordable – even with a higher interest rate.
To have specific options that fit you and can help lower your next mortgage payment, request your Mortgage Discovery Consultation by filling out the form below. Our team of experts at Heritage Home Loans is here to assist you every step of the way!